Monday, April 06, 2015

terminated franchisee can sue UPS for false advertising by other franchisees

I’m eliminating large chunks of this dispute involving a
terminated UPS franchisee sued for trademark infringement and breach of
contract.The Hagans operated UPS
franchise stores in New York City, agreeing that they would not charge
customers more than the UPS Retail Rate.A 2013 UPS investigation used undercover purchases at the Hagans’ stores
and allegedly found a “widespread pattern of improper and dishonest conduct.”
The Hagans agreed to focus on compliance and implement a “Transparency Sales
Model,” but a few months later UPS sent
notices of default for nine of the Hagans’ eleven stores.

Before those notices of default, the Hagans launched their
own investigation into other franchisees’ pricing practices, hiring a licensed
PI to make undercover buys at over 40 Manhattan UPS stores. That investigation
allegedly found other franchisees “overcharging customers by, for example,
overstating the dimensions and weights of packages to increase their billable
weight, and by misleading customers into unnecessarily selecting more expensive
shipment options by misrepresenting which services were ‘guaranteed.’” Because
the Hagans had stopped these practices, their shipping rates and services
differed from those of other stores. When customers noticed these
discrepancies, they allegedly declined to do business with UPS altogether.

The Hagans reported their findings to UPS; UPS terminated
the franchise agreements and sued.The
Hagans counterclaimed, alleging various causes of action, including violation of
New York’s consumer protection law.The
Hagans argued that they were whistleblowers unfairly targeted by UPS.

First, standing: The Hagans would have standing to bring a
claim under the consumer protection law as long as there was harm to the public
at large.And the core of the claim here
did involve harm to consumers, “even if that is not what concerns the Hagans
the most” and wasn’t the source of their claimed damages.

A GBL §349 claim need not satisfy Rule 9(b), and does not
require intent to defraud or mislead. Nor does it require proof of justifiable
reliance.The conduct at issue here was
consumer-oriented and potentially affected similarly situated consumers, who
were allegedly overcharged at nearly every UPS store in Manhattan. The alleged
practices of price inflation, altering weight or dimensions of packages, and
misrepresenting the availability of guaranteed shipment options were all
prohibited by §349 because they serve to “undermine a consumer’s ability to
evaluate his or her market options and to make a free and intelligent choice.”

Finally, the Hagans needed to plead actual injury caused by
the misleading or deceptive act or practice.Here, the alleged injury was that the Hagans lost business as a result
of the continued deceptive practices of their peer franchisees, because customers
stopped using UPS altogether when they were offered conflicting information
about which UPS services were “guaranteed” at different stores. That was
sufficient to plead injury, and therefore the claim as a whole was adequately
pled.

The §349 claim alleged that UPS was culpable on an “aiding
and abetting” theory.UPS argued that
the statute didn’t allow for such liability.However, UPS allegedly uses a laser measurement system to find the
actual weight and dimensions of packages, thus detecting and tracking
overcharge. The overcharges allegedly stayed within the UPS network and were
generally not refunded to customers. Thus, it was unnecessary to consider §349
coverage of aiders and abettors given the broad language: “Deceptive acts or
practices in the conduct of any business, trade or commerce or in the
furnishing of any service in this state....”

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